Question

Cupola Fan Corporation issued 10%, $480,000, 10-year bonds for $468,000 on June 30, 2018. Debt issue costs were $2,300. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2019), the corporation exercised its call privilege and retired the bonds for $475,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs.

Required:
1. to 4. Prepare the journal entry to record the issuance of the bonds, the payment of interest and amortization of debt issue costs on December 31, 2018 & 2019, and the call of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Date	Account Title	Debit	Credit
June 30, 2018	Cash	$465,700
	Debt issue costs	$2,300
	Discount on Bonds	$12,000
	Bonds Payable		$480,000
December 31, 2018	Interest Expense	$24,715
	To Cash ($480,000 x 10% x 6/12)		$24,000
	To Debt issue costs ($2,300 / 20)		$115
	To Discount on Bonds ($12,000 / 20)		$600
June 30, 2019	Interest Expense	$24,715
	To Cash ($480,000 x 10% x 6/12)		$24,000
	To Debt issue costs ($2,300 / 20)		$115
	To Discount on Bonds ($12,000 / 20)		$600
July 1, 2019	Bonds Payable	$480,000
	Loss on call of bonds	$7,870
	To Cash		$475,000
	To Discount on Bonds ($12,000 x 18/20)		$10,800
	To Debt issue costs ($2,300 x 18 / 20)		$2,070